SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: February 28, 1999 Commission File No.: 2-76262-NY
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LASER MASTER INTERNATIONAL, INC.
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(Exact name of Registrant as Specified in its charter)
New York 11-2564587
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(State of Incorporation) (IRS Employee Identification No.)
1000 First Street, Harrison, New Jersey 07029
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(Address of Principal Offices)
(201) 482-7200
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Telephone Number
N/A
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(Former name, address and fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report:
Common Stock - 10,615,380 shares each share $0.01 par value.
<PAGE>
LASER MASTER INTERNATIONAL INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - February 28, 1999 3-4
Consolidated Statements of Operations for the
Three Months Ended February 28, 1999 and
February 29, 1998 5
Consolidated Statements of Cash Flows for the
Three Months Ended February 28, 1999 and
February 29, 1998 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
PART II. OTHER INFORMATION 12
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
FEBRUARY 28,
1999
CURRENT ASSETS:
<S> <C>
Cash in Banks $ 151,553
Marketable Securities 469,268
Accounts Receivable - Net 3,040,824
Merchandise Inventory 2,018,650
Prepaid Expenses 70,036
Notes Receivable 107,761
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TOTAL CURRENT ASSETS $ 5,858,092
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FIXED ASSETS:
Factory Building & Improvements $ 5,059,708
Land - Factory Site 215,000
Machinery & Equipment 8,507,395
Engraving Inventory 878,456
Installation Cost 953,524
Furniture & Fixtures 134,849
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TOTAL $15,748,932
Less: Accum. Depreciation 6,204,515
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TOTAL FIXED ASSETS $ 9,544,417
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OTHER ASSETS:
Deferred Charges $ 99,572
Restricted Cash 246,784
Notes Receivable 323,282
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TOTAL OTHER ASSETS $ 669,638
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TOTAL
ASSETS $16,072,147
===========
</TABLE>
The accompanying notes to financial statements are an integral part of
this statement and should be read in conjunction herewith.
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<PAGE>
<TABLE>
<CAPTION>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES
FEBRUARY 28,
1999
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CURRENT LIABILITIES:
<S> <C>
Accounts Payable $ 942,199
Accrued Expenses & Taxes 76,140
Current Portion of Long Term Debt 628,711
Loan - Merrill Lynch 1,903,336
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TOTAL CURRENT LIABILITIES $ 3,550,386
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LONG TERM LIABILITIES:
Non-Current Portion of Long Term
Debt $ 4,284,152
Other 40,065
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TOTAL LONG TERM LIABILITIES $ 4,324,217
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TOTAL LIABILITIES $ 7,874,603
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STOCKHOLDERS' EQUITY:
Capital Stock - Authorized
50,000,000 Shares at 1c Par Value
Issued and Outstanding 10,615,380
Shares at 2/28/99 $ 106,154
Capital in Excess Par 5,424,412
Unrealized Gain on Securities (11,127)
Retained Earnings 2,678,105
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TOTAL STOCKHOLDERS' EQUITY $ 8,197,544
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 16,072,147
============
The accompanying notes to financial statements are an integral part of
this statement and should be read in conjunction herewith.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29,
1999 1998
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<S> <C> <C>
REVENUES $ 3,185,571 $ 3,143,115
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Depreciation Expense $ 129,185 $ 123,069
Cost of Sales 2,259,988 2,297,130
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TOTAL COST OF SALES 2,389,173 2,420,199
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GROSS PROFIT 796,398 722,916
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OPERATING EXPENSES:
Selling Expenses $ 336,412 $ 329,951
General & Administrative Expenses 350,554 320,105
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TOTAL OPERATING EXPENSES $ 686,966 $ 650,056
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OPERATING PROFIT $ 109,432 $ 72,860
Interest & Finance Charges $ 92,614 $ 111,447
Interest & Dividend Income (8,918) (2,969)
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NET EARNINGS - BEFORE FIT $ 25,736 (35,618)
=========== ===========
Less: FIT Provision - Current -- --
Tax Effect of NOL Carryforward -- --
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NET EARNINGS FOR THE PERIOD $ 25,736 (35,618)
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EARNINGS PER SHARE * $ .00 $ .00
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DIVIDENDS PER SHARE -0- -0-
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<FN>
* Earnings per share are based on 10,615,380 shares outstanding at February 28,
1999 and 10,615,380 February 29, 1998.
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
THREE MONTHS ENDED
FEBRUARY 28 FEBRUARY 29,
1999 1998
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<S> <C> <C>
Net Cash Flow From Operating
Activities:
Net Income $ 25,736 $ (35,618)
Items Reflected in Net Income
Not Requiring Cash:
Depreciation & Amortization 129,185 123,069
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$ 154,921 $ 87,451
Cash Flow Provided From Operations
Accounts Receivable $ 446,613 $(417,470)
Inventories 33,706 (122,849)
Prepaid Expenses 5,470 (683)
Loans Receivable -- 33,832
Accounts Payable (415,241) (153,722)
Accrued Expenses (11,289) (164,248)
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Cash Flow Provided by Operations $ 214,180 $(737,689)
Cash Flow Provided from (used for)
Investment Purposes:
Additions to Fixed Assets $ -- $ (48,131)
Increase in Other Assets (38,034) (127,726)
Marketable Securities 6,817 (20,425)
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Total Cash Flow Provided from
Investment Purposes $ (31,217) $(196,282)
Cash Flow Provided From (used for)
Financing Purposes:
Repayment in Long Term Debt (270,626) (11,667)
Capital Contributed -- --
Increase in Bank Loan -- 590,323
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Total Cash Flow From Financing $(270,626) $ 578,656
Net Cash Flow $ (87,663) $(355,315)
Cash and Cash Equivalents at
Beginning of Period 239,216 412,353
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Cash and Cash Equivalents at End of Period $ 151,553 $ 57,038
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
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NOTE 1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS AND
CONSOLIDATING PRINCIPLES
The consolidated financial statements include the accounts of Laser Master
International Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The company was founded in 1981 and prints for the textile industry and the gift
wrap paper industry. The company sells its products and services nationwide
through its direct sales force and resellers. In addition the company has a real
estate division that rents space in the factory buildings owned by the company.
All intercompany transactions and balances have been eliminated in accordance
with established accounting principles.
Name and brief description of companies under common control:
1. FLEXO-CRAFT PRINTS INC.
This company has for approximately 18 years been engaged in the business of
commercial printing and engraving, utilizing a laser technique. The company
principally produces an extensive line of patterns and designs which are sold to
industrial customers engaged in the manufacture of varied end products.
2. HARRISON REALTY CORP.
This company owns and operates a 240,000 sq. ft. factory building in Harrison,
New Jersey. There are two unaffiliated tenants currently occupying 49% of the
space.
3. PASSPORT PAPERS INC & EAST RIVER ARTS INC.
These Companies are Sales Corporations which sell products printed by Flexo
Craft Prints Inc. They each sell under their own labels and in their respective
markets.
a. METHOD OF ACCOUNTING FOR THE BUSINESS COMBINATION:
This business combination has been accounted for as a reorganization under
common control.
b. PERIOD FOR WHICH RESULTS OF OPERATIONS OF THE MERGED COMPANIES ARE INCLUDED
IN THE INCOME STATEMENT OF THE PARENT COMPANY:
The income statement of Laser Master International Inc. reflects the result of
its operations on a consolidated basis for the three months ended February 28,
1999 and February 29, 1998.
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<PAGE>
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a) The statements are prepared on the accrual basis of accounting.
(b) Inventory valuation: Inventories are stated at the lower of cost
(first-in, first-out) or market.
(c) Depreciation of property, plant, equipment and furniture is
calculated on the straight line method based on estimated useful
lives of 10 to 33 years for buildings and improvements and 3 to 10
years for machinery, equipment and furniture.
(d) Taxes:
Laser Master International, Inc. is a "C" corporation with the
Federal, State and City taxing authorities. All corporate taxes are
accrued and paid on the corporate level.
NOTE 3. ACCOUNTS RECEIVABLE
The account on the balance sheet of Laser Master International Inc.
referred to as "Accounts Receivable-Net" represents amounts due from
customers for goods sold and delivered on a current basis. The accounts
receivable so stated are encumbered to one of the company's lenders.
NOTE 4. INVENTORIES
The inventories are valued at the lower of cost or market on a
first-in, first-out basis.
NOTE 5. FACTORY BUILDING AND IMPROVEMENTS
One of the wholly owned subsidiaries of the company, Harrison Realty
Corp., owns the land and the building situated at 1000 First Street,
Harrison, New Jersey. The building is encumbered by a mortgage obtained
from Fleet Bank and the New Jersey EDA.
NOTE 6. MACHINERY AND EQUIPMENT
The machinery and equipment is owned by the wholly owned subsidiary
Flexo-Craft Prints Inc. It consists of various pieces of heavy
equipment, the acquisition of which has been financed on an individual
basis at the time of purchase and installation. For details of these
encumbrances, reference is made to the consolidated schedule of total
debt in the 10K.
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<PAGE>
NOTE 7. DEPRECIATION
Property, plant and equipment is stated at cost. Depreciation is
computed by applying the straight-line method to individual items.
Where accelerated depreciation methods are used for tax purposes,
deferred income taxes may be recorded. Maintenance and repairs were
charged to expenses as incurred.
02/28/99 02/29/98
-------- --------
Depreciation charged to
Cost of Sales $129,185 $123,069
======== ========
The annual depreciation rates used are as follows:
Building and Improvements 3%
Machinery and Equipment 10% - 14.3%
Furniture and Fixtures 10%
NOTE 8. ENGRAVING INVENTORY
The company's principal operating subsidiary, Flexo-Craft Prints Inc.
is engaged in the manufacture of designs and patterns which by means of
a laser engraving process grooves are engraved on a rubber sleeve, and
by means of a computer color separation (up to six colors) fabricate
the matrix for the printing phase of operations.
In order to present to the trade a wide selection of proprietary
patterns and designs, the company maintains a constant library of
approximately 5,000 sleeves. In case of obsolete or discontinued
designs, sleeves become reusable after mechanically grinding flat the
old pattern and vulcanizing the surface. For accounting purposes, an
obsolescence factor is charged based on the entire cost of discontinued
patterns, exclusive of the extended life of the reusable rubber
sleeves. Historically this method results in a provision for
depreciation of l0% per year of the total library inventory of complete
patterns on sleeves.
NOTE 9. TAX LOSS CARRYFORWARD
On November 30, l998 the company had a net operating loss carryforward
of $227,460.
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<PAGE>
NOTE 10. REMUNERATION OF DIRECTORS AND OFFICERS
Annual
Name Capacity in which remuneration was received Salary
- ------------ ------------------------------------------- --------
Mendel Klein President, Treasurer, Chairman of the Board $125,000
Leah Klein Vice President, Secretary, Director -0-
Mirel Spitz Vice President, Office Manager, Director -0
Mr. Mendel Klein, pursuant to an employment contract entered into with
the company which became effective upon completion of the public
offering, receives an annual salary of $125,000. Additionally, Mr.
Klein will participate in group life, accident and hospitalization
insurance, provide for all key employees, and he will have the use of a
company owned automobile. No other officer or director has a contract
of employment with the company. There are no consulting agreements in
existence between the company and any officers.
NOTE 11. CONTINGENT LIABILITIES
The Company is contingently liable to Fleet Bank of New Jersey for
letters of credit in the amount of $4,825,972 issued in conjunction
with the New Jersey Tax Exempt Bonds which financed the company's new
factory building and 8 color press. Fleet Bank has a 1st lien on the
assets of Harrison Realty and 2nd and 3rd liens on the assets of
Flexo-Craft.
NOTE 12. EARNINGS PER SHARE - 10,615,380 SHARES COMMON STOCK -
PAR VALUE $0.0l at 2/28/99 and 10,615,380 shares at 2/29/98.
Fiscal years ended
02/28/99 02/29/98
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Net earnings per share - $ .00 $ .00
NOTE 13. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are written off as they occur. An allowance for doubtful
accounts has been established in the amount of $304,500 or 10% of
accounts receivable.
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<PAGE>
MANAGEMENT'S COMPARATIVE DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
FEBRUARY 28, 1999 AND FEBRUARY 29, 1998
RESULTS OF OPERATIONS
---------------------
REVENUES
For the three months ended February 28, 1999 revenues increased 1% from the
prior year. For the quarter ended February 29, 1998 revenues increased 26% over
the same period from the prior year. This increase was primarily the result of
increased sales volume through orders from existing customers. Management
anticipates that the rate of increase of revenues when compared to the previous
year will widen as the year goes on. This is based on the fact the company has
signed contracts and received orders that should benefit the second half of the
year. In addition the 8 color press is now operating satisfactorily and will
contribute to revenue growth.
GROSS PROFIT
For the three months ended February 28, 1999 gross profit was 25% as compared to
23% for the same period in the previous year. In the current period the 8 color
press was operating efficiently and that helped improve the gross profit
percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 6% for the three months
ended February 28, 1999 over the same period for the previous year. This was as
a result of the Company's attempt to gear up its support systems for an expected
increase in sales in the 2nd half of the year.
INTEREST EXPENSE
Interest expense decreased for the first three months of 1999 as compared to the
same period for the previous year. This was as a result of lower levels of debt.
FINANCIAL CONDITION AND LIQUIDITY
The Company is well positioned to meet anticipated future capital requirements
necessary for purchase of equipment and financing of current operations. At
February 28, 1999 the Company had working capital of $2,307,706. Liquidity is
sustained principally through funds provided from operations with unused bank
lines of credit available to provide additional sources of capital when
required. Management does not anticipate any difficulties in financing existing
operations.
-11-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LITIGATION
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
LASER MASTER INTERNATIONAL, INC.
-------------------------------------
(Registrant)
4/12/99 /s/ MENDEL KLEIN
- -------------------------------- -------------------------------------
Date MENDEL KLEIN, PRESIDENT
4/12/99 /s/ LEAH KLEIN
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Date LEAH KLEIN, VICE PRESIDENT/SEC'Y
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<PAGE>
The Registrant or any of its consolidated subsidiaries have not
consummated, not have they participated in a business combination during any of
the periods covered by the report, nor has a business combination occurred
during the current fiscal year.
There have been no material retroactive prior period adjustments made
during any period included in this report. Accordingly, there have been no
material prior period adjustments which had an effect upon net income, total
and per share, nor upon the balance of retained earnings.
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